CytoDyn: There Seems To Be No Redemption (OTCMKTS:CYDY)

A few months ago, I wrote a bearish article on CytoDyn (OTCQB:CYDY) whose essential thrust was that the ex-CEO’s mismanagement has destroyed this company beyond any possible hopes of recovery. Sadly, with the recent DoJ chargesheet against the ex-CEO, as well as a separate complaint from the SEC, I have been proven to be correct. Everything about leronlimab is now suspect, because, if some of what the DoJ and the SEC alleges is true, it becomes difficult to trust the data that came through during the previous CEO’s tenure.

Of course, leronlimab is an organic molecule and it may well be worth something. It could be argued that leronlimab and the company’s new management should be given a fair chance. However, the data generation process needs to start afresh. Any data generated during the former CEO’s time needs to be reexamined.

Why is what happened to the former CEO of CytoDyn relevant to leronlimab’s worth as a molecule?

CytoDyn’s former CEO is Nader Pourhassan, Ph.D., and the CEO of a CRO called Amarex that ran its trials and managed its FDA interactions was Kazem Kazempour. The two are accused by the Department of Justice, indictment cited above, of the following:

Pourhassan and Kazempour allegedly deceived investors about the timeline and status of CytoDyn’s regulatory submissions to the U.S. Food and Drug Administration (FDA) to artificially inflate and maintain the price of CytoDyn’s stock and attract new investors, and for their personal benefit, including by selling their personal shares of CytoDyn stock.

The DoJ suggests that the two allegedly submitted an incomplete NDA to the FDA after missing multiple deadlines, knowing that the FDA will reject an incomplete NDA. They then proceeded to tell investors that they had submitted a complete NDA, whereupon the two sold millions of dollars worth of CYDY shares.

There’s more:

Pourhassan is also accused of causing CytoDyn to make false and misleading representations about developing leronlimab as a potential treatment for COVID-19, including the significance of clinical trial data and the status of CytoDyn’s FDA submissions. Pourhassan allegedly knew that leronlimab’s clinical studies failed to achieve the results needed for FDA approval, but CytoDyn continued to insist the drug could treat patients with severe disease. The FDA publicly disagreed and called out the company for cherry-picking data to suggest the therapy was a success.

What’s more concerning to me are the allegations of data manipulation. If these are true, it leaves the entire leronlimab program in some jeopardy.

As a safe harbor statement, please note the DoJ’s official position about an indictment:

An indictment is not a finding of guilt. An individual charged by indictment is presumed innocent unless and until proven guilty at some later criminal proceedings.

Where does that leave CytoDyn?

Well, just two months ago, CytoDyn “voluntarily” withdrew its NDA for the HIV indication of leronlimab “due to issues related to data collection and trial monitoring by its contract research organization.” This is a direct fallout of the DoJ allegations. Part of the DoJ allegations was against the CRO, which was Amarex. This is the same CRO that the current management of CytoDyn is now suing:

While the Company met its primary endpoints in these pivotal trials, which we think is a clear indication that leronlimab performs well in the clinic, we believe the issues identified in each of the three independent audits related to the quality of the data collection and oversight by the CRO make it difficult to support a successful BLA regulatory submission. Further, we have filed a claim against the CRO seeking damages resulting from its breach of the Master Services Agreement and related agreements and reimbursement of our attorney fees and costs associated with the action.

As Inspector in Charge Eric Shen of the U.S. Postal Inspection Service (USPIS) Criminal Investigations Group said:

In this case, these individuals took advantage of the dream of a possible new treatment for HIV and exploited investors, while dashing the hopes of many waiting for a cure.

The HIV program was put on hold in March, and the company does not believe the NDA is approvable in its current form and will need considerable more investment to see it through. They have already spent millions on the program. They do say they will continue to push the molecule for NASH and oncology indications:

It added that it will continue examining leronlimab for other HIV indications, non-alcoholic steatohepatitis (NASH’), and oncology indications.

It’s my opinion that leronlimab’s future looks bleak because the entire dataset generated during the time of the former CEO and using their previous CRO is now suspect. Why is the entire data suspect? Here are some parts of the complaint from the SEC to show where the problem lies:

The November 13, 2018, press release also stated that CytoDyn’s clinical trial had shown HIV viral load suppression at a “92% Responder Rate” when the tested dosage of PRO 140 was increased from 350 milligrams to 700 milligrams.

However

During a teleconference on December 14, 2018, between the FDA, CytoDyn (including Pourhassan), and Amarex (including Kazempour), the FDA stated that it had not seen the study data to validate this information.

It could well be that some of the data is good, and the former CEO’s only alleged offence was to exaggerate the timeline of the BLA submission. However, the company under new management says they made “three independent audits related to the quality of the data collection and oversight by the CRO.” The audits must have found deficiencies in the quality of the data, which “make it difficult to support a successful BLA regulatory submission.” Hence, the entire dataset is suspect, for any trial that generated data during the tenure of the former CEO.

Leronlimab was once known as PRO 140, discovered and developed initially at Progenics, a now-defunct pharma company. The molecule has always been highly touted, without really showing much efficacy in any of the indications it targeted. Just last year, after the FDA rebuked the company’s excessive touting of its COVID-19 effect, a group of investors laid out a plan – complete with a website and other trappings – of partnering leronlimab with big pharma to combine it with checkpoint inhibitors, etc. There were, at one point, 22 trials ongoing for the molecule a la keytruda. In hindsight, though, all this looks like promotion based on very little data. This becomes clear if you recall how the FDA, in a rare public rebuke on May 17, 2021, about “leronlimab in order to correct the misleading information in CytoDyn’s press releases,” said:

It has become clear that the data currently available do not support the clinical benefit of leronlimab for the treatment of COVID-19.

Thus, CytoDyn was promoting leronlimab without adequate data.

After the CEO was ousted, some long-time shareholders have been saying that this may be a new beginning for the company with the same molecule but in NASH or another indication. I seriously doubt that. The mismanagement by the previous CEO alone is not the problem, but leronlimab, too, is a problem. This is, at its core, an ineffective molecule, or at least one whose true drug activity has not been convincingly demonstrated. This company can survive only if it lets go of leronlimab or begin the data generation process afresh. However, since CytoDyn mostly equates to leronlimab, there’s no future for the company as well. They have some $9.8mn in current assets as of August, and they were spending just around $10mn per quarter at that time, so they have very little cash, if any. They may well end up providing quick entry to the US market for some ex-US company with a legitimate program but one that wants to avoid some of the regulatory hassles of listing on Nasdaq or other US markets.

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